Trading Review for 1/31/2000
As we noted yesterday, "Many stocks staged a multipoint rally within the last 10-15 minutes of trading. This could indicate buy programs kicking in to bottom fish and may be an indication of a near term bottom forming." This seems to have been the case.
Successful trading is about knowing where to look for opportunities, knowing when to seize the opportunity (or not), and managing their risk to maximize their profits. To that end, let's take a quick look at Wednesday's trading action relative to the top Trade Prospector signals:
Volatility Compressions
AFFX opened at 228 1/2, bounced off 229 and sold off to a low of 207 1/4 before rallying to close at 231 1/2
MSTR opened at 154 9/16, sold down to 131 1/2, rallied to 145, sold to 135, and then rallied again to close at 138 7/8
JNPR gapped down to 138 and began selling off to a low of 125 1/16 before buying brought it back to a high of 138 5/8 and closed at 135 5/16
Volatility compression trades are, well, volatile. But they offer the attentive trader significant profit potential.
AFFX gave short entry at the 216.3 lower boundary only for the quick fingered today. The breakdown from that price level was so quick that many traders undoubtedly were unable to capitalize on it. Those that did realized about 8 points profit.
MSTR broke down quickly like AFFX. Those fast enough to enter short at the 139.1 breakdown level picked up about 6 points profit. Later in the afternoon the stock gave a better short entry afte first rallying back to 145 and then breaking down agin for a 3 point profit.
JNPR gapped down rght to the lower entry boundary and rewarded short traders with 12 points profit. Another small profit opportunity came later in the afternoon that was good for another 2+ points.
Trading Range Patterns
AVA opened at 31 11/16 and sold off to a low of 26 1/2 before regaining some ground to close at 29
SNPS opened at 43 7/16, dropped to 43, bounced up to 44 5/8, fell to 43 3/8, and finally rallied to a high of 46 7/8 and closed at 46 3/16
GERN gapped open to 30 1/2, sold down to 28 1/8, rallied to range trade between 28 7/8 and 29 1/2 for much of the day and finally broke to the upside for a high of 31 3/4 and a close at 31 1/2
Trading range patterns often produce good volatility as well. And as we've said before, volatility is a trader's friend because it produces opportunities
AVA gave a short entry at 28.9 good for about 1 1/2 points.
SNPS headfaked traders long at 44.1 only to almost hit their initial exit stops before finally heading north to deliver 2+ points profit.
GERN triggered traders short at 28.6 only to turn around and stop them out for a 1 point loss. It then triggered them long at 31.3 for fractional gains.
Mutliday Patterns
AVA opened at 31 11/16 and sold off to a low of 26 1/2 before regaining some ground to close at 29
RIMM opened at 64, dropped to 62 1/2, rallied to a high of 69 5/16, fell to 65, and closed at 65 3/4
GERN gapped open to 30 1/2, sold down to 28 1/8, rallied to range trade between 28 7/8 and 29 1/2 for much of the day and finally broke to the upside for a high of 31 3/4 and a close at 31 1/2
Multiday patterns, like volatlity compressions, often result in high volatility for the stocks.
AVA gave a short entry at 28.9 good for about 1 1/2 points.
RIMM bounced off the 62.4 lower boundary and gave aggressive traders an early long entry good for 6 points. More conservative traders waited for the 66.1 upper boundary to be breached and realized 2+ points profit.
GERN triggered traders short at 28.6 only to turn around and stop them out for a 1 point loss. It then triggered them long at 31.3 for fractional gains.
Breakthrough Momentum
NSOL opened at 219, quickly ran to 230, and then just as quickly sold off to a low of 203 3/4 before regaining ground to close at 216 7/8
ITWO gapped open to 206 7/16, bounnced up to 207 9/16, and then sold off to 180 1/2, before rallying back to 195 and closing at 192 5/8
YHOO gapped open to 310, shot up to 319 1/2, fell to 303, and then climbed back to close at 322 1/16
NSOL gave traders a short entry at the 214.3 boundary for 10+ points profit.
ITWO offered a short entry at the 196 boundary for 14-15 points profit.
YHOO triggered traders first long at the 314.3 boundary for 4 points profit, then short at the 305.3 boundary for 1+ points profit, and then again at the 314.3 boundary for 7+ points profit. Aggressive traders who faded the two reversals were rewarded with an additional 18 points for their aggressiveness.
Momentum Intersections
WMT gapped open to 54 9/16, bounced between 54 1/8 and 55 1/2 for much of the day and closed at 55
CKFR opened at 60, shot to 63 3/4, sold down to 55 3/4, and then rallied to close at 59
DOW opened at 115, popped up to 116 1/8, sold down to 113 3/8, and rallied back to close at 116 1/2
WMT briefly triggered shorts at 54.6 for fractional losses and was subsequently abandonded because it failed to break out of its trading range
CKFR triggered shorts at the 59.6 lower boundary for 3 points profit
DOW triggered shorts at the 114.3 lower boundary but traders were soon stopped out at breakeven when it bounced back
Trading Channel
From the Trading Channel Breaches group - OCLI, CHKP, NSOL
From the Near Trading Channel group - OAK, ERTS, NOK, MFNX
From the Narrow Trading Channel group - PMCS, AFFX, RNWK
From the Near and Narrow Trading Channel group - OAK, MFNX, PRGN, HIFN
OCLI continued to trade below its trading channel all day
CHKP had split 2:1 after yesterday's close but the prices from our quote vendor were not adjusted until this morning for the split. As such, traders needed to halve the numbers shown by Trade Prospector. CHKP traded below its trading channel all day
NSOL likewise remained below its trading channel all day
OAK completed its merger with GLW over the weekend and therefore did not trade today
ERTS gapped open to 72 3/16, fell to 71 3/4, rallied to 75 7/8, fell again to 70, rallied back to 76 1/4, sold off to 73, and finally rallied to close at 81 3/4
NOK gapped open to 181 25/32, fell to 177 1/18, and rallied back to close at 182 1/2
MFNX opened at 65 1/8, rallied to 68, fell to 61, rallied back to 68 1/2, and closed at 67 11/16
PMCS opened at 188 7/8, fell to 181 1/8, rallied to 191 1/4, sold off to 170 9/16, rallied back to 185, and closed at 180 1/2
AFFX opened at 228 1/2, bounced off 229 and sold off to a low of 207 1/4 before rallying to close at 231 1/2
RNWK opened at 158, rallied to 163, quickly sold off to 139 1/2, and finally rallied to close at 157 3/16
PRGN gapped lower to 80 5/8, hit congestion around 80, finally fell to 73, and then bounced back to 77 before closing at 75 15/16
HIFN opened at 57 7/16, fell to 51 5/8, and rallied back to close at 55 1/8
Trading channel trades can be simple and rewarding.
OCLI, CHKP, and NSOL remained below their trading channels and offered channel traders no entry
ERTS triggered shorts at the 70.8 boundary for a fractional to one point loss when it rebounded off of 70. It then triggered traders long at the 80.5 boundary for 1+ points profit.
NOK traded inside its trading channel, however aggressive traders were able to enter long on the reversal off the 177 lower channel boundary and pick up 5 points profit.
MFNX triggered shorts at the 65.1 lower channel boundary for 3 points profit.
PMCS offered aggressive traders an early entry off of the 181 lower boundary reversal for 10 points profit. If they then reversed short off of the 191.9 upper boundary reversal, then picked up another 20 points profit. More conservative traders waited for the breach of the 181 lower boundary and realized 10 points profit.
AFFX allowed short entry at the 215.2 lower boundary for 7 points profit.
RNWK rewarded aggressive traders who took the reversal off of the 163.4 upper boundary with 23 points profit. More conservative traders who waited for the breach of the 152.3 lower channel boundary realized 12 points profit.
PRGN gapped below the trading channel and offered no good trade entry
HIFN gave a good short entry at the 56.7 lower channel boundary for 4 points profit.
Breakout Patterns
BBY opened at 49 1/4, dropped to 47 1/4, rallied back to 48 3/4, and then fell to close at 47 3/4
AMR gapped open to 54 1/2, hit 54 13/16, only to fall back to 53 1/2 and close at 53 13/16
ITW opened at 58, fell to 56 15/16, rallied back to 59 5/8, and closed at 58 1/2
BBY gave traders a short entry at the 48.2 lower boundary which ultimately stopped them out at breakeven when it reversed
AMR failed at both the upper and lower boundaries giving no trades to all but aggressive traders who risked the boundary reversals for 2+ points
ITW likewise only permited trades to aggressive traders willing to trade the boundary reversals for a couple of points
Envelope Patterns
UTX opened at 52 5/8, ran up to 53 3/4, and then range traded between 52 5/16 and 53 1/2 to close at 52 15/16
AFS gapped open to 20, moved up to 20 5/8, and also range traded between 19 11/16 and 20 1/2 to close at 20
ESPI opened at 11 1/4, fell to 9 1/2, and then rallied to close at 10 9/16
The prime envelope pattern trade candidates oscillated near their trading envelopes without commiting to continuation or failure.
UTX and AFS were stuck inside their envelope continuation/failure boundaries and offered no trade entries today
ESPI triggered shorts at the 10.5 lower boundary for a breakeven to a fractional profit trade
Of note to daytraders using the newly rolled out trading index feature - the top three performers in each index category offered traders the following profit opportunities today:
Under $50 - AVA (2 points), ANCR (1 point), WHIT (0 points)
Under $100 - SAPE (2 points), FFIV (9 points), NTAP (5 points)
All - OCLI (18 points), VERT (30 points), CRA (20 points)
Whipsaws can happen in choppy markets and traders should always step away from the trade or give themselves more distance from the original entry boundary when a reversal occurs (such as adding one point to the reversal side of the trade entry boundary) to reduce the effect. Losses are a fact of life, but they can be easily kept to a minimum while maximizing your profits with proper stop management.
Recognizing that a mere one point per day profit when trading 500 shares (or 5 option contracts) is $120,000 per year, you begin to understand the potential for profit in applying Trade Prospector's information.
Copyright 2000, by Third Millennium Trading. All rights reserved. This information is proprietary and reserved for the personal use of Trade Prospector users and registrants. No other use is permitted without the express authorization of Third Millennium Trading.
Disclaimer: Third Millennium Trading does not recommend the purchase or short sale of any stocks. Trading should be based on your own understanding of market conditions, price patterns and risk. The information presented here is designed to contribute to your understanding. Controlling risk through the use of protective stops is critical (more).